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Spain's services PMI hits lowest since December

Source: Reuters - Thu 4th Nov 2010

Activity in Spain's dominant service sector contracted at the fastest pace in October since the end of last year, suggesting the economy could struggle further in the final three months of the year.

Markit's purchasing managers' index of companies in the service sector fell to 46.5 in October from 47.9 in September.

The result was lower than the 47.4 expected by economists and marked the third straight month below the 50 mark separating growth from contraction.

Spain's economy logged weak growth in the first half of the year, and the survey will back some analysts' forecasts for it to slip back into recession later this year, falling further behind the bulk of the faster recovering euro zone countries.

The PMI survey for Spain's manufacturing sector, released on Tuesday, was more positive and pointed to a reliance on exports to help a fragile recovery in a country with close to 20 percent unemployment.

The index was dragged down by a fall in the new business index to 44.8 from 45.5 the previous month, its lowest point since last November.

"The Spanish service sector fell further into the mire at the start of the fourth quarter, with contractions in activity and new business gathering momentum," said Markit economist Andrew Harker.

He said that business confidence was draining away and was now lower than at any point in 2008 as ongoing problems in the economy generate further uncertainty.

Despite a modest rise in the manufacturing PMI, which showed factory activity grew in October, the decline in the larger services sector pointed to an overall decline in Spanish output.

The economy grew by 0.2 percent in the second quarter of the year, with analysts predicting it would contract 0.1 percent in the third on a quarterly basis.

The government remains convinced the economy will not fall back into recession even if the weak pace of growth may have eased in the third quarter. The survey also showed that pricing power remained a problem for businesses last month. While input prices continued to rise at a steady rate, prices charged fell for the 27th month running, reflecting a lack of ability to raise prices in a market hit hard by weak demand.

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